The political economy of public administration: Organization, control and performance of the public sector

This study uses a transactions cost approach to explain the organization of public administration. The enacting legislature is seen as choosing among alternative organizational forms in an effort to overcome the problems that undermine its ability to exchange the benefits of legislation for political support. The difficulties normally associated with non-simultaneous exchange are particularly troublesome to legislators because decision costs are high, the problem of opportunism (and the threat of nullification by a future legislature) is severe and agency costs loom large. The nature of the transaction problem, and the administrative solutions the enacting coalition adopts in response, varies with the function that needs to be performed; form follows function. We apply this approach to three public sector functions; the public provision of goods for sale, regulation and tax financed bureaucratic production.; This transaction cost approach is able to explain a number of the characteristic features of public sector organization and why these vary. In particular, we are concerned to explain the allocation of decision rights and the performance measurement and reward systems adopted in the public sector. We suggest that these are selected because of the incentives they create for legislators, and affected private interests, as well as for public sector employees. Our approach has implications for the scope of delegated authority, for the rights legislators give various stakeholders to participate directly in administrative decision making and for how these rights are structured and enforced. It also has implications for the personnel and budgetary decisions that legislators make. For example, adopting a transactions cost framework enable us to explain the key features of the "employment contract" that characterize the modern civil service; like the rules governing hiring, firing, pay and promotion as well as the structure of compensation, tenure security and restrictions on outside competition.